After the events of Sept. 11, 2001, when the dust finally began to settle, literally and figuratively, news of the perilous condition of the airline industry permeated the radio and airwaves. The airlines had been grounded and had lost millions of dollars as a result, business and leisure travel had decreased dramatically and there were no clear indications of recovery on the horizon. The headlines declared none of the ‘Big 6′ would last another year and it looked to all the world like the skies would be inherited by the low-cost carriers — the survivors.

Amid all of this, stunned frequent flyers shook their heads clear and began anxiously worrying about the safety of their miles.

And they haven’t stopped worrying since.

The industry has recovered to an extent, as have the hopes of many frequent flyers. In contrast to the airlines’ positions during the 1990s, following the ominous clouds of the first Middle East war, and to a large degree as a result of that period, frequent flyer programs today have built stronger tools to weather these economic storms — these tools are called alliances and multiple airline partnerships. Still, there are almost daily reminders that few of these frequent flyer programs are likely to emerge unscathed from the airlines’ woes.

Threats of bankruptcy filings are becoming almost common place (not to mention the actual filings themselves), numerous travel-related companies have either been bought out or have closed altogether, and many of the so-called “experts” that cover the industry are going hoarse from three years of yelling “Burn (Miles), Burn (Miles), Burn (Miles)!”

A Little Volatility is a Good Thing
No doubt, the frequent flyer programs have had a bad scare, but most seem able to ride the bumps. So far, the ups and downs have had little bottom-line impact. We’ve analyzed the airlines’ financials relating to award redemption for the past three years and, despite the call from many blowhards to burn miles, the numbers seem to indicate most members are taking this airline crisis in stride. For example, When US Airways filed for Chapter 11 bankruptcy in 2002, Dividend Miles award redemption shot up 18.3 percent. However, redemption was up 29 percent that year at Southwest, nearly 15 percent at Continental, 42 percent at Alaska and 17 percent at Delta. None of these other programs were in jeopardy of going out of business at the time, so it appears there was not a run on the bank to redeem Dividend Miles. And, since United filed for Chapter 11 bankruptcy, its award redemption statistics have held virtually steady. United experienced absolutely no increase in redemption in 2003 or 2002, and in 2001 the Mileage Plus program only witnessed a 1.5 percent increase in annual award redemption.

It’s true that the past few years have been some of the most volatile the industry has ever seen, and this volatility has caused even the most savvy of frequent flyers to reach for the Pepto-Bismol. But volatility can also be a good thing — at least as it relates to your miles.

The truth of the matter is, when times are dire for the airlines, they will do almost anything to protect their frequent flyer programs.

As we have long reported, these programs are possibly one of the top two most valuable assets an airline can own. While many programs have upped mileage requirements for upgrades and selected premium-class awards over the past few years, it’s also important to note that these types of changes were also introduced when times were good for the airlines. The majority of these changes are simply a natural evolution in the growth of these programs, rather than a knee-jerk reaction to the volatility of the industry.

And in at least one very demonstrable way, the current volatility has resulted in direct value to members.

Say you only have 18,432 miles with the United Mileage Plus program. Well, in years past those miles would have been essentially worthless, as they weren’t enough to redeem for the most basic flight award. Because of the volatility of industry and strategic changes within the Mileage Plus program, those miles now have value thanks to Mileage Plus’ new 15,000-mile award for flights less than 750 miles in distance.

Devalued? Seems in this case at least value has been added.

Ah Yes, But What About US Airways Dividend Miles?
US Airways Dividend Miles is an example of a program that is clearly having a very difficult time tacking in a new direction, and to date is the most scarred program coming out of 9/11. The airline’s management is in the process of trying to morph US Airways into a low-cost carrier, and all the while the blowhards continue to cry — as they have for years now — that US Airways is history.

If US Airways is successful in its efforts to create a new airline, Dividend Miles members might end up with more than they could have ever hoped — all the benefits of a full-service frequent flyer program and a low-fare carrier.

“I feel it’s worth the risk to stick with US Airways Dividend Miles,” says Randy Petersen, editor of InsideFlyer. “If US Airways is able to recreate itself as a low-cost carrier, I’ll have equity in full-service frequent flyer benefits with the partnership of United and Star Alliance as well as fares that will allow me no other choice of carrier.”

That is a combination that is basically unheard of in the entire world. Go to almost any other country and you’ll find that members have long been penalized for flying on fares that resemble “peanuts.” In fact, the only airline that comes close to providing such a valuable combination is located in Dallas and goes by the name Southwest. The Southwest Rapid Rewards program, however, faces severe route limitations (just try redeeming an award to London or Honolulu) that a new and improved US Airways would not.

If, on the other hand, US Airways is unsuccessful, members could very well end up with nothing at all.

The Costs of Failure
For the record, there has only been a single case in history where members of an airline that went out of business (liquidated) had their miles honored by another program. Interestingly enough, it involved US Airways.

When Midway Airlines (#2) failed in July 2002, US Airways Dividend Miles stepped up and implemented a program that allowed Midway Airlines’ Frequent Traveler members to convert their un-expired and unused credits into Dividend Miles. In this instance, US Airways was actually entering into an agreement with Midway to operate as a part of US Airways Express, so the deal wasn’t without strings, but it also was not an actual takeover, as was the case of TWA and Pan Am.

Some point to Eastern as an example of an airline honoring another’s frequent flyer program. Actually that was not the case at all. At that time, Eastern and Continental actually shared a single frequent flyer program — OnePass. When Eastern failed, it wasn’t so much that Continental honored the miles of the Eastern OnePass members, as it was they could not distinguish between the two accounts.

Those frequent flyers who were with Braniff (any version of this airline), Midway (#1), MGM Grand, Legend Airlines, Vanguard Airlines and, most recently, National Airlines when they liquidated also lost all of their miles.

Unfortunately for members, the airlines have figured out there are better ways to benefit from the misfortune of others that don’t involve taking on vast sums of liability.

When Midway Airlines (#1) failed in 1991, no other airline honored those frequent flyer credits. In bankruptcy court, another frequent flyer program bid on and acquired the membership data of the Midway frequent flyer program, using it to mine names, addresses and account activity to find potential new elite members. Sadly, this is the best way to solicit new frequent flyers without incurring the expense of honoring billions of miles.

So, what would happen to unredeemed miles sitting in your Dividend Miles account should US Airways liquidate?

Some “travel experts” have claimed other airlines will step in to honor the miles if Dividend Miles should fail, even if you don’t have an award already booked with them. Take that advise with a grain — make that two grains — of salt.

We have no doubt that if any airline failed here in the U.S. and was not acquired, the members of that program would lose all of their unredeemed miles.

“I cannot see any scenario whereby any airline would step forward to honor miles still in account should US Airways fail,” says Petersen. “Whether it be Delta, United, Hawaiian or Air Canada — there is no return to any airline in honoring these many miles of liability. There is no airline that has the financial wherewithal to let people simply fly for free.”

Caveat emptor — or should that be, let the redeemer beware?

A factoid: never has a major airline failed during a peak travel period, and that includes the holidays.

How to Protect Your Miles, Especially Your Dividend Miles
First of all, we need to clarify that we are not predicting a liquidation for US Airways over the next few months. There is still time to enjoy your Dividend Miles without senselessly trying to cash all of them in.

Besides, who is able to tell their boss they need a few months off so they can prevent ending up with nothing?

But, if you aren’t sleeping well at night, here are a few tips to better secure future value for your miles:

Open a new line of credit — If you earn many or most of your miles by spending money on the Dividend Miles Signature credit card, you might consider joining the American Express Membership Rewards program, picking up the Starwood Preferred Guest American Express credit card or even the United Mileage Plus BankOne Visa card. Both American Express cards offer you the ability to move “miles” into US Airways Dividend Miles (as well as several other frequent flyer programs) at your own choosing, but also provide the flexibility to keep the miles in another currency (credit card points or hotel points). Unlike the current US Airways credit card, you only need to move miles into Dividend Miles when and if you are redeeming for an award. The United Visa card allows you to earn miles with United (considered safe) while retaining the option to redeem awards back into US Airways. If things get better, go back to the Dividend Miles Signature card — it’s very competitive, especially with additional benefits these other cards can’t match.

“Buy” cheap insurance — Consider redeeming your miles for a “possible” future trip on a US Airways partner. Look at Bahamasair in the Caribbean, United Airlines to many domestic and international destinations, Air Canada for Star Alliance destinations in North America and other Star Alliance carriers, such as SAS, Lufthansa, etc, for international destinations. While this method is not fail proof, it does allow you a bit of breathing room because, if US Airways were to liquidate, your award tickets on these other carriers would likely be honored. If after the start of the New Year you’re feeling good about US Airways, you can re-deposit your award into your Dividend Miles account. Sure, it creates an accounting nightmare for US Airways and its partners, but US Airways got itself into this position and certainly understands that members have a right to take advantage of this type of partnership offer. There are fees associated with this strategy, but that’s life.

Call an audible — Another strategy, which is best suited for not-quite-so-frequent flyers, is to continue to fly US Airways but offer up a United Mileage Plus account number (and yes, we’re confident that United will make it.) We say not-quite-so-frequent flyer because, while this will give you miles in a “safer” program, it fails to build miles toward elite status. So, if you think you will fly less than 25,000 miles with US Airways in 2004, this might be something to consider. If you’re planning on flying more than 25,000 miles, then you need to ask yourself: Do I think they will make it or not? If the answer is “no,” you need to switch airlines. The good news is, should you fall short of elite qualification this year and US Airways does make it, the Dividend Miles program would almost certainly be smart enough to grant a request to continue at an appropriate elite level. You might also consider the elite “spoof” — continue to fly US Airways, earn your miles in the United Mileage Plus program, and hold a Dividend Miles Signature credit card in your wallet, as the benefits of that card almost equal that of elite status (without the bonuses). With the Dividend Miles Signature card you’ll receive unlimited standby upgrades, preferred check-in and boarding, discounted awards, as well as a clubroom pass. In fact, you wouldn’t even have to spend much on this card to secure the benefits.

Understand, we offer this advice as a means to continue flying and supporting US Airways, which is very important to them right now, while still retaining a degree of safety for yourself.

Minding Your Mental Well-Being
In good times and bad, members switch programs. Sometimes it’s because of a job change, sometimes it’s due to a program change, and sometimes it just comes down to a change of heart.

Frankly, an airline’s troubling financial condition is as good a reason as any to redirect your frequent flyer loyalty. Most members have switched loyalty for far less stressful reasons than the future of their miles. If the roller coaster plight of your current airline of choice leaves you feeling nauseous, then it just might be time to make that decision.

Often, members leave a program to fly elsewhere and eventually come back. This could be that time for you — cut your losses (losses in this sense is the time lost worrying) and move on to another program. Heck, it won’t be the end of the world, and if it means a peaceful night’s rest for you, then you will know you have done the right thing.

Bottom Line: Is it Still OK to Book Flights on US Airways?
Many a question has been raised about whether or not it is wise to book a revenue ticket on US Airways in its current state. We see no problem with doing so.

After 9/11, the government put into place several polices specifically to address this type of situation. If US Airways were to liquidate, you’d see other airlines step up to honor any paid US Airways tickets.

Now, as for awards already booked on US Airways — that’s a different story.

We’ve tried for months to get the Office of Transportation to provide a clear indication whether or not award tickets are included in the policy of forcing other airlines to honor tickets from a failed airline. To date, Washington has done a good job of ignoring our requests, so we are unable to offer any factual information on this.

Still, we strongly suspect US Airways will honor any award currently redeemed for free travel through the end of the year.